The Dallas Fed updated the final of the regional Fed manufacturing indices this morning. Business Activity remains in contraction but improved versus July. The headline index came in at -12.9, slightly worse than expectations of a reading of -12.7. Expectations saw a similar move with a large bounce off of the worst levels of the post-pandemic period.
Although the headline reading was higher, breadth was disappointing with only five other categories rising month over month. With broad declines across other categories, three indices—Unfilled Orders, Capacity Utilization, and Delivery Times—fell from expansion and into contraction. As has been the case with other regional Fed indices, expectations are generally far more pessimistic with ten of the sixteen indices in the bottom decile of their historical ranges and two others only half of one percentage point away. For comparison, there is not a single current conditions index at that low of a reading.
As demand has pulled back with New Orders seeing the third straight monthly contractionary reading, Production and Capacity Utilization are two of the most depressed indices of the report. These indices are in the 18th and 17th percentiles of their historical ranges, respectively. After this month’s declines, those two indices have reached the lowest levels since May 2020. In other words, consistently weak demand in recent months has resulted in production to go little changed. Ironically, the region’s firms reported much healthier expectations with significant increases in those indices. For Production, the 10.3 point month-over-month increase ranks in the top 7% of all monthly readings.
Likely another result of weakened demand, both Prices Paid and Received have continued their sharp declines across both current conditions and expectations. Prices Paid fell for the third month in a row and is now at the lowest level since October 2020 whereas Prices Received has fallen five months in a row and is down to the lowest level since February 2021. Not only are firms seeing a deceleration in price increases, but Delivery Times actually fell into contraction for the first time since June 2020. Paired with that, Inventories are also signaling improvements in supply chains as this month marked the fourth consecutive expansionary reading; the longest such streak since a six-month streak ending in January 2019. Expectations, however, are now calling for that dynamic to remain for much longer as the drop to -9.7 is the lowest reading since April 2020. Click here to learn more about Bespoke’s premium stock market research service.